Digimarc Corp (DMRC) 2018 Q2 法說會逐字稿

Good afternoon, thank you for participating in today's conference call.

Now I would like to turn call over to Bruce Davis, Chairman and CEO of Digimarc. Mr. Davis, please proceed.

Thanks. Good afternoon. Welcome to our conference call. Charles Beck, our CFO, is with me.

On the call today, we'll review Q2 financial results, discuss significant business developments and market conditions and provide an update on execution strategy.

We will archive this webcast in the Investor Relations section of the website.

Please note that during the course of this call, we will be making certain forward-looking statements, including those regarding revenue recognition matters, results of operations, investments, initiatives, perspectives on business partners, customers, prospects, industry trends and growth strategies. We also will discuss from time to time information provided to us by channel partners and actual and potential customers about their business activities. We are providing this information as we understand and as represented to us. We do not verify, nor vouch for such information.

Such forward-looking statements and statements about partners and customers are subject to many assumptions, risks, uncertainties and changes in circumstances. Any assumptions we share about future performance represent a point-in-time estimate. Actual results may vary maturity from those expressed or implied by such statements. Actual results may vary materially from those expressed or implied by such statements. We expressly disclaim any obligation to revise or update any assumptions, projections or other forward-looking statements to reflect events or circumstances that may arise after this conference call. For more information on risk factors that may cause actual results to differ from expectations, please see the company's filings with the SEC, including the Form 10-Q that we expect to file shortly.

Charles will begin by commenting on our financial results. I'll then discuss significant business developments, market conditions and execution strategy. Charles?

Thanks, Bruce. Good afternoon, everyone.

Revenue for the quarter was $5.4 million, down $200,000 from the second quarter of last year due to lower license revenue. License revenue was lower year-over-year, reflecting the impact of the fully paid-up license we entered into the third quarter of last year, where in exchange for $3.5 million license fee, we waived any future royalty obligations from this licensee in one of the licensed fields of use.

Subscription revenue was essentially flat. The effects of growth in Digimarc Barcode revenue were largely offset by decline in Digimarc Guardian revenue.

In regard to revenue composition, we expect service revenue to continue to grow in the single digits but vary quarter to quarter based on timing of when services are performed. License revenue should remain relatively flat, but with some variability quarter to quarter. We anticipate Guardian revenue to be flat to slightly down as we have minimized our investments in that area of our business, and for Barcode revenue to grow as bookings grow.

Digimarc Discover and Barcode bookings were $200,000 during the quarter versus $100,000 in Q2 last year. We expect lumpiness in quarterly bookings in the early stages of market development due to timing and varying provisions affecting bookings.

Gross margin for the quarter was 59%, down 3 points from last year, reflecting the impact of lower license revenue.

Operating expenses were $1 million higher than the second quarter of last year due to increased staffing in sales, marketing and operations to enhance our ability to deliver the benefits of Digimarc Barcode to retailers and brands.

Net loss for the second quarter was $8 million or $0.71 per diluted share versus a net loss of $6.9 million or $0.68 per diluted share in the same quarter last year.

We invested $6.9 million of working capital during Q2, which was slightly lower than the low end of the range we provided on our last call. We used $6.2 million to fund operations and $400,000 for capital expenditures.

We ended the quarter with $56.8 million in cash and marketable securities.

We anticipate cash usage will be between $7 million to $8 million in the third quarter. Our projected cash usage for Q3 is higher than Q2, reflecting differences in the timing of customer collections and vendor disbursements.

We intend to hold around the same level of operating expense we invested in Q2 until we see sustainable uptake in the top line. We believe that we have sufficient resources supporting identified programs for specific customers to drive near-term revenue growth. We are focusing resources on these opportunities.

There are many factors affecting the timing of revenue growth. We were doing all we can to shorten the critical path.

For further discussion of our financial results and risks and prospects for our business, please see our Form 10-Q that we expect to file shortly.

Bruce will provide his comments on significant business developments, market conditions and execution strategy.

Thanks, Charles.

I noted in our last call that we have contracts with 2 of the top 5 largest retailers and 1 of the top 5 largest CPGs in the world and that we're working with these companies to scale their use of our platform in terms of volume and breadth of applications. We expect their success to serve as a tipping point for the industry, accelerating the pace of adoption more generally.

Our near-term financial performance will be heavily influenced by the pace and outcome of pending contract negotiations with certain customers and prospects. The cash flow assumptions that Charles mentioned do not include the effects of successful completion of these negotiations. We are not only exercising discipline in the level of spending in the meantime, we are continuing operations to improve -- efforts to improve operational effectiveness, particularly in account management and delivery.

Our current focus is on facilitating enterprise business transformation in large-format grocery and general merchandise and in the warehouse club channel. We offer the opportunity to benefit from many enhancements in store operations and shopper engagement via our Intuitive Computing Platform. Enhancement of media with Digimarc Barcode lies at the foundation of this platform. We are expanding the enhanced media footprint with major key customers lining up relevant auto ID interfaces and developing or supporting basic applications.

Key areas of focus include packaging, thermal labels on fresh products, hangtags on apparel, shelf labels, print catalogs and retail-ready packs and other in-store materials. Lately, spurred by customer interest, we have begun exploration of enhancement of shipping labels.

Scanner vendor participation is expanding in the number and scope to provide reliable and efficient discovery of these Digimarc Barcode and media in support of an initial portfolio of applications aimed at improving store operations, consumer engagement, manufacture and quality control, and logistics. Increase in the coverage of media and deployment of discovery capability feeds expansion of applications that increase the value of the platform to enterprises and their customers.

The financial and operational leverage of the platform increases at a much higher rate than its costs. The early stages of deployment are very important in laying down this foundation and leading accounts to the journey to broad deployment and greater commercial success from the modernization of their businesses.

Financial and operational leverage is magnified by CPG participation. We are making very good progress in multiple CPG brands, influenced by one of our large retail customers. We expect several SKUs of national brand products to reach the shelves in Q3 in the silent pilot, with a plan to follow on with dozens of more SKUs prior to year-end, all in support of various programs planned for 2019. Several other vendors are considering following suit.

The obvious broad relevance of our platform requires that we orchestrate many aspects of account management, leading us to make several senior-level hires in sales, business development, partner and product management. And the restructure areas of our business involved were account assessment, solution architecture, tools development and delivery. We have made great progress lately.

I believe that these changes will facilitate achievement of the market momentum that is core to our over strategy. We are doing all we can within the constraints of responsible working capital management to deliver the tipping point and momentum that we anticipate.

Interest and the number and scope of engagements is growing. Participation by suppliers is broadening, and our partner network is becoming more capable.

We have strong industry support from retail market leaders. We appreciate the need to demonstrate revenue acceleration and provide other evidence of their support to the capital markets.

We have an increasingly broad range of activities at one of our key customers. Tests are underway with another key customer with Digimarc-enhanced hang tags for apparel in stores as we had anticipated. The products are in the stores. Our initial assessment is that they look and work fine. Now we have historical (inaudible) of merchants and their suppliers to achieve scale. The first enhanced private-brand consumer packaged goods for this retailer is moving through approval and may reach the stores during this quarter. We have presented the case for thermal label adoption and are awaiting customer feedback. We're working with another large retailer and a supplier is on a plan for implementation of our platform, beginning with the enhancement of private brand packaged goods and thermal label fresh products. Contract negotiations are continuing with this retailer and with a large CPG. We are engaged with an increasing number of CPGs across a range of applications.

We are aiming to bring -- begin our first European packaging pilot later this year after careful study of how best to develop the territory. As I said in our last call, our negotiations with retailers would benefit from more evidence of adoption among leaders in the U.S. Thus, we will stay the course of modest investment for the time being.

In Japan, study group activities indicate there are many opportunities. We have done work with OEM partners on a few specific projects. We are in the process of scoping some important R&D with a global leading CPG.

The Ministry of Economy, Trade and Industry of the Japanese government mandated that convenience stores in Japan attach RFID tags to all products by 2025 to address cashier labor shortages and changes in consumer shopping behavior. The primary objective is to reduce congestion at checkout. We have proposed that Digimarc Barcode be considered as a complementary means of accomplishing these objectives and received a positive response, allowing us to move forward with pilot programs with convenience stores in Japan.

We have posted the presentation from METI, the Ministry of Economy, Trade and Industry, from 2017 describing the program in the Resources section of our website for your convenience. It's noted in the presentation that the mandate is conditioned on industry reducing the cost of tags, including the chip, antenna and seals to less than $0.01 and developing systems that allow manufacturers to accomplish stores tagging for nearly all products. The government knows that there are many products in convenience stores with special disqualifying conditions such as products warmed by microwave, stored in metal containers, frozen, chilled or ultra-thin. We are being allowed to demonstrate our cost effectiveness in addressing the aims of the mandate. The implementation challenges facing application of RFID to fast-moving consumer goods are daunting, allowing us to showcase our platform in a competitive context.

You may have seen the announcement recently by the strategic partnership formed between Microsoft and Walmart to accelerate Walmart's digital transformation. We have publicly announced partnerships with each of these companies. We hope that their collaboration will facilitate delivery of applications on our platform at scale, benefiting both companies.

Integration of our Discovery software to Windows 10 core was a technical proof of the feasibility of Digimarc's role in the evolution of mobile device discovery functions. Microsoft's mobile focuses on enterprise solutions where Discovery is a dominant application of the imaging interface. On the other hand, imagers in the first generation of smartphones focus on taking pictures. As auto ID proliferates in the age in Internet of Things, we see auto ID as a natural basic feature of smartphone cameras. With Windows technical proof in market, we will support Microsoft's enterprise market and simultaneously increase our advocacy for this evolution of smartphone camera functionality.

Making identification of objects of interest a routine function of smartphone cameras is a critical step in addressing the widespread gnawing desire of consumer product companies for a continuous and mutually valuable engagement with their customers and prospects. The answer to the common question of, "What's the app?" is on the horizon. And Digimarc should play a key role in the portfolio of reconditioned agents empowering this major change in the definition of a smartphone camera.

We have put in place basic building blocks with industry leaders and their suppliers in the U.S., Germany and Japan. Most of our resources are focused on U.S. retailers and CPGs. Our priorities for the second half of 2018 are to grow bookings and publicize evidence of progress among early adopters, collaboration with leaders and industry momentum. The operational foundation of these accomplishments will flow from increasingly effective account management and delivery systems whereby more media are enhanced, more devices are enabled for discovery, more applications are developed and implemented, all of which would deliver increasing ROI to our customers by bringing to bear the benefits of digital technology, providing evidence to the rest of the industry that it's time to get on board.

I understand from analysts that some shareholders and prospects would like more guidance concerning competition we might face given the long gestation of the market. Our primary competition is the status quo, conventional barcodes. We seldom confront any other competition and accounts. We view most alternative means of objects identification as complementary, with preferences depending on relative applications, cost and environmental factors.

For example, Amazon Go has garnered a lot of attention in the capital markets. It combines pressure-sensitive shelving, image recognition, account registration and artificial intelligence to allow customers to skip checkout altogether. Amazon has 3 stores in operation and has announced plans to open a few more. They are small-format convenience stores.

Some apartment buildings use similar approaches to allow residents to purchase staples like toilet paper and diapers.

The cost of implementation of Amazon Go are unknown and certainly high. Social acceptance is also unknown. Registration is required. There is no public information about error rates. Thus, there are many unanswered questions about cost-effectiveness, scaling and consumer acceptance.

As with all systems based on image recognition, the identification can be made more reliable and efficient if there are data structures like barcodes, QR codes or Digimarc Barcodes that can be used by the computer interface to avoid the need for guessing. Although the visible data carriers may eventually become obsolete, which is most likely going to be due to Digimarc Barcode, which would make the identification more effective with little marginal cost. Image recognition systems will continue to improve. Digimarc Barcode will be a contributor to that improvement.

Regarding the Discover layer of the Intuitive Computing Platform, we know that recently that Scandit, a Swiss mobile scanning software company, secured $30 million in Series B financing, leading one of our shareholders to inquire whether Scandit as a competitor is getting traction. Their innovation is relating to light footprint software for enterprise barcode scanning applications for mobile devices. They have not developed any proprietary data carriers that will compete with Digimarc Barcode. Quite the contrary, we publicly demonstrated technical collaboration at NRF 2017 where they demonstrated Digimarc Barcode detection integrated into their software. Thus, they are a potential application developer for our platform. The relationship has not progressed since then because we've not found a common customer for such collaboration.

Although Scandit describes their business as offering enterprise mobility in the data capture platform built on proprietary computer vision, machine learning and augmented reality, thus far, they've focused on building application on scanning GS1 standard barcodes.

We have a sure vision of the future and a cordial relationship and would welcome the opportunity to work together, facilitating the seamless multi-modal discovery that we both anticipate will be at the foundation of the future of auto ID. Application developers like Scandit play a key role in our company's intuitive computing platform. We want to foster a large community of such developers.

Our vision for media object identification is that non-human discernible, visible data carriers that dominate the supply chain today will be obsoleted by Digimarc Barcode and chip-based technologies in the context of improving image and audio-estimation techniques. Various addition of identity will be blended together to provide users with a seamless multi-modal discovery capability that will permeate business and society as the Internet of Things becomes more prevalent.

The structure of design of media objects will change to improve auto identification to meet the associated expectations embodied in augmented reality and enterprise automation. We have more than 1,000 patents covering our contributions to this vision that is becoming a reality.

Our mission is to build from the top down in our initial product market focus on retailers and their suppliers to grow revenues and profits, and demonstrate the more general relevance of our platform.

Our balance sheet's in good shape. We're very focused on improving operational effectiveness, developing and refining our tools and processes, expanding our institutional knowledge and supporting our growing supplier network.

We plan to present at the Liolios Group Gateway Conference in San Francisco on Thursday, September 6.

In the meantime and until the next quarterly call, investors can follow progress via our many public communication channels, including our social media channels that are accessible via our website, presentation of industry events, the Digimarc Perceptions blog and Digimarc Digest, our monthly newsletter.

We will update and refresh our website on a regular basis with new content and product information.

That's it for the prepared remarks for today. Now we'll open the call to questions.

(Operator Instructions) Our first question comes from Rob Stone.

A couple of things, Bruce. One is, if I'm remembering correctly from the last call, I think there were 2 or 3 pilots going on with thermal labels and I was just wondering -- you mentioned thermal labels in context of comments about a couple of customers. Just sort of what is the status of going from pilots to implementation on thermal?

Yes. So without getting specific about accounts, we have full deployment in some stores, one of the smaller retailers. And we are anticipating moving beyond pilot with larger retailers. And so far, I would say, everything seems to be we're working fine. It takes some time to get the printers all enabled for firmware because there are a wide range of printers and versions of printers in stores. And so we've been sorting out that process since the last call.

Okay. I think you were also planning, once Wegmans was set up with thermal labels and had more of their planned rollout of packaged store-branded items in the store, on shelves, to do a third-party test which would help you validate the concept for other potential customers. Any comment on how that might be progressing?

Yes. We're planning to do some ROI studies soon, but I don't have permission nor can I provide any sort of assurance that there will be any public disclosure of the results. So we're doing the test for us and for them. And obviously, for us to make any public disclosures, we would need their permission. And the balance of incentives and business incentives for them to make the disclosure are such that I can't predict the outcome. So it's really up to them whether they want to say anything or not.

All right. A final question, and I'll just back in the queue. So you mentioned that you had 1 large CPG that's under contract, and you're talking to others, and sounds like in collaboration with or maybe at the behest of one of the large retailer customers, you're getting more CPG products enabled this year. And I -- first thing was I didn't quite catch the sequence and the scale, if you could repeat that. But the heart of my question really is from what angle, if you're able to provide any more color, is the retailer and the CPG partners are they approaching this? Is it something like, "We want you guys to do this, and we're going to save money at checkout, but we'll help you with engagement or we'll give you an end cap or sort of a handful of CPG products." I'm just curious about what the use case is? Why the retailers -- wanting to collaborate with them at this stage?

Yes, complicated question. I'll give you -- I'll do my best to give you a good answer to it, Rob. So we announced previously that we have a multiyear contract with a large CPG, and that I mentioned in this call that we're negotiating with another one for a similar kind of arrangement. And then, we have a growing number of CPGs who are doing business with us on a more ad hoc basis. That is that they're not yet negotiating multiyear large agreements in terms of scope. So beginning first with where we have a contract. The interest there ranges from improving their manufacturing processes to consumer engagement, and we have other CPGs that are interested in the same portfolio of applications. Those that are focusing on retailer relations right now are looking for opportunities to begin to demonstrate merchandising capabilities, improving consumer experiences and easier checkout at retail, so that's a slightly different portfolio of applications. With respect to the -- those who are interested in consumer engagement, one of the reasons that I mentioned increasing our efforts to move the smartphone market forward is that the industry has been stymied by the lack of an application that they are willing to support for interaction with their customers and prospects. No one yet has cracked the nut on that. So it's not really a question about Digimarc Barcode as a data carrier, it's really a question about how the industry is able to engage with their consumers without having to be disintermediated by someone like Amazon or Google or even Walmart. So they'd like to be able to communicate directly if they can in those circumstances. That opportunity will only arise, I believe, based on all the observations for the last several years when auto identification is a routine feature of smartphones. So I think they need it desperately, and we're going to be more vocal and more helpful in trying to get the smartphone guys to move there more quickly. So that's how all those things come together. So you know, as everyone on the call I think knows, that the independent product suppliers' participation in the program brings incremental benefits to the retailers. So the retailers know what's good for them when their suppliers get involved, but suppliers see lots of opportunities or benefits from the platform in addition to making their retail trading partners happy. And so we see a range here of participation across a number of applications, all of which are consistent with our strategy.

So is it possible, particularly around this concept of consumer engagement and merchandising, that, that might result in making these activities a little more visible? If a big CPG and a major retailer are doing some kind of a program to try and stir up consumer excitement about this stuff using the application, I would think they'd have to promote that so that consumers would be aware of that? Am I barking up the wrong tree or not?

No, no, no, you're spot on to, I'll call, my ambition. I wish I could say I know I can deliver it. But earlier in the year, I said that I thought this was a year in which -- without necessarily the formality of press releases that things become more obvious. I thought really that there's a reasonable chance that's going to occur and it would be along the lines of what you just outlined, and that is that some of this stuff is apparently public. And so as these activities percolate up, what's going on will become more obvious to everyone. And then of course, where I can, where I sense that there's a need to level the playing field, I'll amplify the public disclosures and communication vehicles like a quarterly call. But there's a lot of stuff going on. I just can't -- I'm not allowed to talk about because of the confidentiality restrictions I have on my disclosures, but that would all go away once things get into the public view.

Your next question comes from [Mark Weissenberger].

You mentioned that there are some hang-ups in terms of the supply chain and logistics. Can you talk about some of the specifics that are roadblocks and how you are working with the different parties to expedite the process?

I think you may have misinterpreted something I said. I don't think I said something about hang-ups with logistics, more that there are opportunities in merging logistics.

Sure. Can you talk about how you're helping to facilitate those opportunities along the -- that supply chain then?

Yes. Yes, so we've been asked by some entities to take a look at how we might be able to help out in logistics. And so beginning with the shipping aspects of logistics, there is a -- quite a high non-read -- misread rate at the receiving facilities of all shippers. And we've actually been to a few places and talked to a few folks. And I won't share anybody's numbers, but the numbers were quite startlingly high across the number of different shipping channels, and that's because the labels tend to get misapplied or damaged in shipment. And so that then leads to a human intervention, a sidetracking of the processing of the packages that move at extremely high speeds when the labels are easily read. So it's pretty clear to us that we can make the labels more reliably and more efficiently read. There are a lot of open questions about how this is applied in logistics, and so I don't want to take the time on this call to go into that because this is not core to our strategy right now. But we're being asked to look into it, and we're willing to look into it if we're paid to do so. So we're being quite clear that we're not going to get distracted from our core strategy by opportunities there, but if it will help us to grow revenues sooner instead of later, then we'd be happy to talk. So we've done initial studies. We understand the situation. We believe we can help, and now, we need to find sponsors. So we'll see how that goes. There is also an ambition over time to reduce or eliminate labels, consistent with the sort of vision piece we did at NRF 2018. And that's a much larger proposition that involves a substantial amount of business process reengineering for shipping companies. And so that would be a long sort of process. Again, we think that, that can happen and we'd love to contribute to it, but we're not going to invest in it in the near term. All of the work in shipping in distribution centers, eventually it's in shipment to stores, and so the stocking of product on stores. And so I've mentioned a few times now that we intend to work on shelf labels. And one of the primary applications of shelf label improvement is to improve the quality and the efficiency of stocking shelves and making sure that there's adequate product there, that the right product is there and the prices are correct. And I think that's a very important, very valuable use of the platform. So we can see now that we're knitting together in -- that we're doing with customers, all the way from the label production associated with building a product to shipping the product to receiving the product to merchandising the product and, hopefully, at some point, we'll get to demonstrate the benefits at home for the consumer. And then we've been asked to be involved in recycling. I've turned that down, again, out of a desire to maintain focus in relation to responsible working capital management. So we do think we're going to be able to demonstrate in the not-too-distance future, assuming there's economic sponsorship for all of it, a full lifecycle benefit of the platform for all the products, from actual inception and manufacturing to recycling.

Great. You also mentioned about the network effects of -- across the platforms and you're wanting to kind of foster the community of developers. Can you elaborate on that?

Yes. We've been building some initial applications to prime the pump. That's -- our business model is to focus our energy on improving Digimarc Barcode. And so we built Digimarc Discover so that we have the software that would identify the enhanced media. We're happy to license that to anybody who wants to use it. And then, the conjunction of the enhanced media and the Discovery software creates opportunities for applications. We have not contemplated that we would be a substantial application developer. We want to build a community to do that so that we can remain focused on the core R&D of replacing conventional data carriers with Digimarc Barcode and receiving lots of income from the application developers and their clients for the use of the platform. So it's really -- it's most akin to an operating system model. And if you think back on the evolution of PC operating systems, you'd see an analogous experience where the operating system companies built a few of the early applications in order to prime the pump, so we're following a path that's quite similar to that.

Great. And one final one from me. Are you seeing any interest for -- in categories that you wouldn't expect beyond kind of the private-label stuff that maybe is kind of coming up and could be a next interesting opportunity to expand the platform?

Nothing that we wouldn't expect because we expect broad relevance of the platform. But lots of things that could distract us if we let them, but we won't. So we're very focused on highest and best use of our working capital to address the strategy that we have told you all that we we're focused on. So we're going to do what we said we would do with the capital that we've raised from the financial markets. And then, later on, when we have demonstrated success in that target product market, there is a wide-ranging opportunity beyond that.

Your next question comes from Ilya Grozovsky.

Wanted to just ask you guys about the margin in the subscription business. Just kind of how do you see that going forward? It's been bounced around for the last 6 quarters or so.

Yes. We expect long term that the margin of the subscription business will be quite significant. Right now, we kind of a mix of Guardian revenue and Barcode revenue. And the Guardian revenue is a 50% to 60% margin-type business. As the concentration of that's higher, obviously that has some implications on our margins. Barcode business -- really, the license component of it's basically 100% margin. What can impact margins there, though, is that we do provide some services, and those services are generally in kind of the mid-50% margins. So really it comes down to mix of those components. But as Barcode license revenue becomes a much larger component of that line item, we would expect that margins would start to rise quite nicely.

Your next question comes from Jeff Bernstein.

Bruce, just was looking for a little bit more detail about the improved smartphone experience and sort of what needs to happen to get there. Are we talking about basically having the auto ID without pushing the button to take a picture? And that sounds like kind of an operating system of a phone issue. And so is it Android and iOS that have to be targeted? Or just go into that a little bit.

Sure. So I'll pull together a few threads here, Jeff. The first is, in talking to our CPG customers, they all desperately want consumer engagement, but can't figure out how to do it. And that's one of the key value propositions for them of having enhanced auto identification capability in the pack design itself. So we all want it to happen. And one of the benefits of the Microsoft partnership is that we've shown as a technical matter that we can be embedded deep within the operating system of mobile devices. The Microsoft implementation is at a stage where it's meant to facilitate developer work. So it's not surfaced as an auto ID feature as a routine function of even those enterprise mobile devices to date. So we'd like to move Microsoft to that. But having demonstrated our capability to do such things, we'd like iOS and Android to come along in the consumer space. And so I think what we've proven is that the only reason that's not happening is priorities of the developer resources of those companies. And so we're trying our best to fill in some advocacy here that will give them to move us up in the priorities of their developers. And so you can expect us to become more vocal in the coming months and more instructive about how to get things done in that regard, and hopefully, be able to enlist some significant resources to support our efforts. But as we saw the Apple results this week, cell phone sales are flat. And where Apple's making its money is growth in services. Well, auto ID would give rise to a whole new class of services and make consumers really much happier with their devices and provide a great deal of utility to them and to the companies that they want to buy products from. So we're going to really up-level that activity to the best of our ability during the remainder of the year to see if we can expedite the technical development for everybody's benefit. And it does seem unnatural that in a world in which the leaders of those companies are talking about augmented reality, that they're not allowing the foundational element of identification a thing to be augmented to be optimized. It just seems like they have to do it. And so I don't know that we've been sufficiently advocating that, so we're going to do a better job as the year moves on here and doing that. And we'll see what happens. I can't promise anything, but we're going to up-level our advocacy.

And just a quick follow-up. I think you mentioned a list of service -- expanding media coverage for Digimarc Barcode. And I think you mentioned print catalogs and something about some retail-ready packs. And could you just explain the things we haven't talked about extensively before, hang tags and thermal labels and shelf packs?

Sure. So first with respect to the mention of catalogs, I should probably say catalogs and circulars. So this goes also to the notion of creating a more efficient consumer experience in shopping. But we've done a little bit of experimentation in the magazine business. As you know, there is some continuing use in that field. But the question really was, again, about what's the app? There are hundreds of billions of pages of catalogs and circulars advertising products produced annually in the U.S. alone, and none of them allow for automatic ordering of any of the things that they're selling. And so -- for a relatively low cost, any of the sponsors of those activities could have that -- our identification capability. And so we have some interest that's been expressed in maybe moving down that path. I think it's a terrific idea and, again, a natural evolution of our society and economy to go in that direction. The shelf edge, shelf labels, as I said, has great benefits for store operations, but it can also be used by consumers as we await the proliferation of Digimarc Barcode and the packages themselves. Well, some large-format retailers are promoting what they call shelf-ready packs. And that's a shipper carton that has some perforations where the carton is basically opened and put on the shelf. It simplifies the stocking process and it creates a merchandising vehicle around the products, if you like. And so by Digimarc enhancing the -- those shipping packs, we can have an impact on the supply chain and on the shelf by facilitating auto ID potential. And so that again may be an on ramp, if you like, to the individual product identification because it tends to be a less-sensitive, easier process to enhance because it's mostly corrugated, flat with 4-color artwork. So that's how all these things tie together. It's just the ideal of ICP is the more media you enhance, the more opportunity you create. And nearly all of the media opportunities are multiple, that is that you don't get just 1 application to get a bunch. And so the strategy for any large enterprise to move forward with Digimarc is to focus on getting the media enhanced first. And so we've talked in the capital markets about packaging and then more recently about thermal labels, but have to appreciate for retailers and their product suppliers that they all produce lots of media that could be enhanced that would provide the foundation for lots of useful applications in terms of improving operational efficiency and effectiveness and consumer engagement and satisfaction.

Your next question comes from [Kevin Hanrahan.]

Bruce, I wonder if you could give us an update on GS1, your partnership with GS1 US and other countries in maybe GS1 Global. Talk about -- in terms of your Barcode becoming the second standard?

Sure. Thanks, [Kevin]. We've got a great relationship with GS1 US and GS1 Germany, and we have a respectful and mutually supportive relationship with GS1 Japan, which is, well, part of the government there. We've begun some discussions with a few other member organizations of GS1. And then GS1 global and the president of GS1 global are quite for familiar with us and also very supportive. So with respect to their role and our strategy, we really strongly support all of their work, and their standards work. And we think that it's vital to continuing to improve auto identification and -- across the entire supply chain of all the industries served by auto ID. With respect to standards and specifications, we've begun a lot of detailed work on specifications which we intend to publish in the not-too-distant future for comment. And those specifications, we hope, will form a foundation when standards activities are appropriate to expedite the development of corporate standards for the global supply chain. So it's interesting that you asked the question because we just happen to be doing a bunch of work on that, getting our specs in place. And where the specs become most important is when we move into various sort of low error tolerance environments like distribution and logistics. As I've said, they have a terrible problem with the quality of reads of labels. We certainly want to help out there, but they have very tight specifications typically in that area of trade. And they would not embrace anyone who just came in and said, "Hey, I want to put a link down on your label and make life better." So we have to have very detailed specs for activities like that. And then, over time, as Digimarc Barcode moves into other areas of, say, health and safety, it will become vitally important that there are very clear and detailed specs. The purpose of standards and specifications moves beyond just teaching and to compliance and the allocation of legal responsibility. And so we contemplate that, that will be emerging over time here and we want to be ready for it when it does. So we're building the specs for all of those reasons, and I think we're making very good progress.

So the publishing you talked about, would that be in the form of a white paper to be coming out in later quarters?

We will publish specifications. So just like standards, but without any official sort of characterization. So there'll be -- we have a signal specification that is in draft form, and then, we're building application-specific requirements and guidelines. And they'll first go into the trade in a limited distribution. And then, after we've gotten some feedback there, then I presume, we can just publish them because that's their purpose, so they're not going to be secret. But we wouldn't naturally put them into the public domain before getting an appropriate amount of feedback from the trading partners that we deal with. Yes, so it will be a while.

At this time, this concludes our question-and-answer session. I would now like to turn the call back over to Bruce Davis. Sir, please proceed.

All righty. Thanks, everybody, for your support, and we greatly appreciate it. We're doing the best work we can for you, and I think that we'll continue to make progress. And we know what your desires, are, and we're completely focused on what you want us to be focused on.

So we look forward to talking to you again soon. Thanks, again, and goodbye.

This concludes today's call. Thank you, ladies and gentlemen, for joining us for today's presentation. You may now disconnect.